By Tammy Rasplicka
I remember growing up and being taught that you should pay yourself first. My parents taught me that 10 percent of my income should be put into savings before paying bills or splurging on entertainment.
These days, saving doesn’t have to mean keeping money in a bank. If you can tolerate the risk associated with investing, your employer’s benefits can help you save and potentially help with your tax bill at the end of the year.
As a high school and college student there were many times that every dime of my paycheck would go toward putting gas in my car to get me to class or work. But that advice from my parents proved invaluable when I finally landed my first full-time job after college.
That job brought the largest pay increase I’d ever experienced to that point – I suddenly went from working two part-time jobs to earning a real living with benefits that included eligibility to contribute to a 401(k).
At 23 years old, I didn’t need my paycheck to cover a mortgage, kids, or an expensive car. At that point in my life, I lived very simply and not above my means. I suddenly had a windfall of income that I’d never had before.
The best decision I made was to reduce the amount I took home each month and start to build my 401(k). As soon as I was able to make that first contribution, I did. And I did it at a 15 percent rate, even though I received the full company match at 6 percent. But I was young, and I knew that I had one thing on my side – time.
You may have heard about the value of compounding when it comes to investing and savings. Even if you know nothing about finance or investing you can appreciate that the longer you have to achieve a financial goal, the greater the likelihood that it will be achieved.
As I write this I’m in my 20th year in the “real world,” and as most people will find out after college, I’ve learned that life doesn’t always go exactly as planned. I’ve been the sole breadwinner for my family for 20 years.
I was unemployed for a short time and essentially restarted my career because of the financial crisis. I have had many opportunities to travel that I never dreamed I would. But there is one constant that I have protected throughout – contributing to that 401(k)!
Today, my retirement planning has turned toward Roth 401(k) contributions and opening a Roth IRA to take advantage of tax benefits associated with the Roth designation. Roth contribution limits have increased significantly since I joined the “real world.” More investment strategies are allowed than ever before and I still have plenty of time before I plan to retire to enjoy the value of compounding.
I was lucky enough to have parents who were planners of their retirement. My mom worked in banking her whole life and instilled in my sister and I the value of money and what it can do for you if you plan accordingly. “Paying yourself first” is the only way I will be able to retire someday. I never imagined I would have a financial statement with that balance with my name on it.
Studies have shown that the majority of Americans haven’t saved enough for retirement and the data is incredible to consider. I certainly wasn’t going to fall into that category!
Plans don’t always work as you envision them. The only person that can truly take care of you is you. Start early – as early as possible! Get time on your side. And if you haven’t begun your retirement savings, there’s no time like the present!
Click here to download a free guide for tips on how you can get started on your path to a confident financial future.